Finance Seminar with Lubos Pastor, Booth School of Business, University of Chicago
The Department of Finance is proud to announce the upcoming seminar with Lubos Pastor, Booth School of Business, University of Chicago
Lubos Pastor will present:
Lubos Pastor, University of Chicago Booth School of Business
Robert F. Stambaugh, Wharton School of the University of Pennsylvania
Lucian A. Taylor, Wharton School of the University of Pennsylvania
We find that active mutual funds perform better after trading more. This time-series relation between a fund’s turnover and its subsequent benchmark-adjusted return is especially strong for small, high-fee funds. These results are consistent with high-fee funds having greater skill to identity time varying profit opportunities, and with small funds being more able to exploit those opportunities. In addition to this novel evidence of managerial skill and fund-level decreasing returns to scale, we find evidence of industry-level decreasing returns: The positive turnover-performance relation weakens when funds act more in concert. We also identity a common component of fund trading that is correlated with mispricing proxies and helps predict fund returns.